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Pater Tenebrarum

Pater Tenebrarum

Pater Tenebrarum is an independent analyst and economist/social theorist. He has been involved with financial markets in various capacities for 39 years and currently writes economic and market analyses for independent research organizations and a European hedge fund consultancy as well as being the main author of the acting-man blog.

Articles by Pater Tenebrarum

Punch-Drunk Investors & Extinct Bears, Part 1

3 days ago

The Mother of All Blow-Offs
We didn’t really plan on writing about investor sentiment again so soon, but last week a few articles in the financial press caught our eye and after reviewing the data, we thought it would be a good idea to post a brief update. When positioning and sentiment reach levels that were never seen before after the market has gone through a blow-off move for more than a year, it may well be that it means something for once.

Sloshed as we are… a group of professional investors prepares for a day of hard work on Wall Street. The tedium of a market that goes up a little bit every day, day in day out, is taking its toll. – Click to enlarge
Interestingly, the DJIA has fully participated in the

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Gold and Gold Stocks – Patterns, Cycles and Insider Activity, Part 2

15 days ago

Cycles and Sentiment
Another recurring pattern consists of the seasonally strong period in gold around the turn of the year, which is bisected by a mid to late December interim low in the gold price. An additional boost can be expected in January and Feburary from the strong seasonal uptrend in silver and platinum group metals as well (to see the seasonal PGM charts, scroll down to our addendum to this recent article by Dimitri Speck).

10 tola cast bar made in Switzerland for Asian markets. – Click to enlarge
Rallies in silver tend to be quite supportive for precious metals stock indexes, as silver stocks have an even higher beta than their gold brethren (note in this context that the XAU is the more broad-based

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Gold and Gold Stocks – Patterns, Cycles and Insider Activity, Part 1

20 days ago

Repeating Patterns and Positioning
A noteworthy confluence of patterns in gold and gold stocks is in evidence this year. At the close of trading on December 26, the HUI Index has given a (tentative) buy signal by completing a unique chart pattern, which is why we decided to briefly discuss the situation. As usual, things are not as straightforward and simple as they would ideally be, but there is always an element of uncertainty – one has to accept that as a given. Let us look at a chart illustrating one of said patterns:
This chart shows the gold price, the weekly net hedger position in gold futures (the inverse of the net speculative position), with the Fed’s December rate hikes in 2015, 2016 and 2017

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Season’s Greetings

22 days ago

A Difficult, but Also Exciting Year…
Dear Readers,

Another year is coming to a close, and the team at Acting Man wishes you and your loved ones a Merry Christmas / Happy Holidays and all the best for the new year.
You have probably noticed that your main scribe was a lot less prolific this year than he normally tends to be; unfortunately, we were held back by health-related issues. We remain among the quick though and will try to increase our posting frequency again. After all, it is not as though nothing interesting were happening.

We felt a bit like Santa feels in this picture this year, but we are recovering. Santa recovered too, just look at the stock market at the end of the year for evidence.
Particularly

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How the Asset Bubble Could End – Part 2

28 days ago

Contradictory Signals

Special antennae that help traders catch upcoming opportunities. Available from the same outfit that sells the soup-cooling spoon (Acme Inc). – Click to enlarge
There is just one more positioning indicator we want to mention: after surging by around $126 billion since March of 2016, NYSE margin debt has reached a new all time high of more than $561 billion. The important point about this is that margin debt normally peaks well before the market does. Based on this indicator, one should not expect major upheaval anytime soon. There are exceptions to the rule though – see the caption below the chart.

NYSE Margin Debt, 1965 – 2017A new all-time high in NYSE margin debt: this is in line with

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How the Asset Bubble Could End – Part 1

29 days ago

Another Shoeshine Boy Moment
We recently pondered the markets while trying out our brand-new electric soup-cooling spoon (see below). We are pondering the markets quite often lately, because we believe tail risk has grown by leaps and bounds and we may be quite close to an important juncture, i.e.,  the kind of pivot that can generate both a lot of excitement and a lot of regret all around. Provided one manages to grasp the nettle with the proper combination of preparation and luck, the emphasis may be on excitement rather than regret.

Photo credit: Hans Reinhart / Getty Images – Click to enlarge
Modern soup-cooling spoon for the sophisticated gourmet. We are not the gentleman in the picture, we don’t even know

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The Stock Market and the FOMC

December 16, 2017

An Astonishing Statistic
As the final FOMC announcement of the year approaches, we want to briefly return to the topic of how the meeting tends to affect the stock market from a statistical perspective. As long time readers may recall, the typical performance of the stock market in the trading days immediately ahead of FOMC announcements was quite remarkable in recent decades. We are referring to the Seaonax event study of the average (or seasonal) performance across a very large number of events, namely the past 160 monetary policy announcements and the 10 trading days surrounding them. It looks as follows:

S&P 500 Index, May 1997 – Dec 2017(see more posts on S&P 500 Index, )We have highlighted the period of

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Bitcoin Facts

November 28, 2017

A Useful Infographic
When we last wrote more extensively about Bitcoin (see Parabolic Coin – evidently, it has become a lot more “parabolic” since then), we said we would soon return to the subject of Bitcoin and monetary theory in these pages. This long planned article was delayed for a number of reasons, one of which was that we realized that Keith Weiner’s series on the topic would give us a good opportunity to address some of the objections to Bitcoin’s fitness as a medium of exchange voiced by critics (we have kept the final three parts of Keith’s discussion in abeyance as well, we intend to publish these concurrently).

Bitcoin Daily, Jan – Dec 2017(see more posts on Bitcoin, )BTC was easily the best

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Business Cycles and Inflation, Part II

November 22, 2017

Early Warning Signals in a Fragile System
[ed note: here is Part 1; if you have missed it, best go there and start reading from the beginning]
We recently received the following charts via email with a query whether they should worry stock market investors. They show two short term interest rates, namely the 2-year t-note yield and 3 month t-bill discount rate. Evidently the moves in short term rates over the past ~18 – 24 months were quite large, even if their absolute levels remain historically low.

US Treasury Yield, Jul 2015 – Nov 2017(see more posts on U.S. Treasuries, )Sizable moves higher in short term interest rates were recorded over the past two years. – Click to enlarge
2 year note yields only started

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Business Cycles and Inflation – Part I

November 18, 2017

Incrementum Advisory Board Meeting Q4 2017 –  Special Guest Ben Hunt, Author and Editor of Epsilon Theory
The quarterly meeting of the Incrementum Fund’s Advisory Board took place on October 10 and we had the great pleasure to be joined by special guest Ben Hunt this time, who is probably known to many of our readers as the main author and editor of Epsilon Theory. He is also chief risk officer at investment management firm Salient Partners. As always, a transcript of the discussion is available for download below.
As usual, we will add a few words here to expand a little on the discussion. A wide range of issues relevant to the markets was debated at the conference call, but we want to focus on just one particular

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Credit Spreads: The Coming Resurrection of Polly

November 9, 2017

Suspicion isn’t Merely Asleep – It is in a Coma (or Dead)
There is an old Monty Python skit about a parrot whose lack of movement and refusal to respond to prodding leads to an intense debate over what state it is in. Is it just sleeping, as the proprietor of the shop that sold it insists? A very tired parrot taking a really deep rest?
Or is it actually dead, as the customer who bought it asserts, offering the fact that it was nailed to its perch as prima facie evidence that what they are looking at is indeed, a late parrot, as deceased and expired as it can possibly be. We hereby submit that Polly, the “Norwegian Blue”, serves as a perfect stand-in for the risk perceptions of today’s corporate (and EM) bond

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Can Switzerland Save the World?

October 26, 2017

Switzerland: Far from Flawless, but still a Unique Country – An Interview with Claudio Grass
Our friend Claudio Grass has discussed Switzerland in these pages before, and on one of these occasions we added some background information on country’s truly unique political system (see “The People Against the Establishment” for  the details). People are generally aware that direct democracy in the form of frequent  referendums is a major characteristic of the Swiss system, but how many people know that the country’s executive is essentially modeled after the system established in the city states of ancient Greece?

Photo credit: Jungfraubahnen – Click to enlarge
The Sphinx observatory on Mt. Jungfraujoch in the

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On the Marc Faber Controversy

October 21, 2017

Il n’y a rien à defender – by Vidocq
Il n’y a rien à defender – There is nothing to defend
Personne n’a lu ce qui a été écrit. – Nobody read what was written.
Personne n’a pensé avant d’agir, comme la plupart des gens de nos jours. – No one thought before acting, like most people nowadays.
L’homme que tu pends est l’homme que tu as fait, pas l’homme que tu tiens. – The man you hang is the man you made, not the man you hang.
Pour ceux qui n’ont pas entièrement lu la lettre de Faber, Nous vous confrontons, Vous qui suspendez quelqu’un sans jugement, sans contexte, et parce que vous êtes égoïste et paresseux, vous, une auto-émeute.
–  To those who have not fully read the Faber letter, We confront you, you who hang

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The 2017 Incrementum Gold Chart Book

October 20, 2017

A Big Reference Chart Collection
Our friends at Incrementum have created a special treat for gold aficionados, based on the 2017 “In Gold We Trust Report”. Not everybody has the time to read a 160 page report, even if it would be quite worthwhile to do so. As we always mention when it is published, it is a highly useful reference work, even if one doesn’t get around to reading all of it (and selective reading is always possible, aided by the table of contents at the beginning).

S&P 500 Large Cap Index, June 2000 – Oct 2017The performance of major asset classes since gold bottomed in July of 1999. Despite the stock market outperforming gold handily since 2011, it is still lagging behind quite a bit over the past

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21st Century Shoe-Shine Boys

September 16, 2017

Anecdotal Flags are Waved

“If a shoeshine boy can predict where this market is going to go, then it’s no place for a man with a lot of money to lose.”
– Joseph Kennedy

It is actually a true story as far as we know – Joseph Kennedy, by all accounts an extremely shrewd businessman and investor (despite the fact that he had graduated in economics*), really did get his shoes shined on Wall Street one fine morning, and the shoe-shine boy, one Pat Bologna, asked him if he wanted a few stock tips. Kennedy was amused and intrigued and encouraged him to go ahead. Bologna wrote a few ticker symbols on a piece of paper, and when Kennedy later that day compared the list to the ticker tape, he realized that all the stocks

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Incrementum Advisory Board Meeting, Q3 2017

August 2, 2017

Global Monetary Architecture
The quarterly Incrementum Advisory Board meeting was held last week (the full transcript is available for download below). Our regulars Dr. Frank Shostak and Jim Rickards were unable to attend this time, but we were joined by special guest Luke Gromen of research house “Forest for the Trees” (FFTT; readers will find free samples of the FFTT newsletter at the site and in case you want to find the link again later, we have recently added it to our blog roll). Below we add a few remarks on a topic Luke Gromen is paying a great deal of attention to.
For readers not familiar with FFTT, Luke has a very special ”big picture” focus, namely the current global monetary architecture and the ways

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Jayant Bhandari on Gold, Submerging Markets and Arbitrage

June 17, 2017

Maurice Jackson Interviews Jayant Bhandari
We are happy to present another interview conducted by Maurice Jackson of Proven and Probable with our friend and frequent contributor Jayant Bhandari, a specialist on gold mining investment, the world’s most outspoken emerging market contrarian, host of the highly regarded annual Capitalism and Morality conference in London and consultant to institutional investors.

As soon as Jayant touches down in London, he is accosted by microphone-wielding young women eager to hear what he has to say… Photo via financialpost.com
Here is a brief summary of the topics Jayant discusses in the interview:

An overview of a recent speech he delivered in London entitled “Gold in India:

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Parabolic Coin

June 16, 2017

The Crypto-Bubble – A Speculator’s Dream in Cyberspace
When writing an article about the recent move in bitcoin, one should probably not begin by preparing the chart images. Chances are one will have to do it all over again. It is a bit like ordering a cup of coffee in Weimar Germany in early November 1923. One had to pay for it right away, as a cup costing one wheelbarrow of Reichsmark may well end up costing two wheelbarrows of Reichsmark half an hour later. These days the question is how many wheelbarrows of US dollars one may need to pay for a bitcoin.
Is it real? (As our readers know, the nature of reality poses certain problems).  When we started writing this, bitcoin had just moved up by more than $600 in one

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Quantitative Easing Explained

June 14, 2017

Printing Money
We have noticed that lately, numerous attempts have been made to explain the mechanics of quantitative easing.  They range from the truly funny as in this by now ‘viral’ You Tube video with two robotic teddy-bears discussing the Fed chairman’s qualifications (‘my plumber has a beard too’), to outright obfuscation such as the propagation of this ‘Bernanke explains he’s not printing money, it’s just an asset swap‘ notion. This was apparently repeated by NY Fed president William Dudley on one occasion as well.
However, ‘quantitative easing’ does amount to printing money, even if it does not involve the issuance of currency in the form of banknotes. Probably readers have heard  the term ‘high-powered

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In Gold We Trust, 2017

June 10, 2017

The 11th Annual In Gold We Trust Report
This year’s Incrementum In Gold We Trust report by our good friends Ronald Stoeferle and Mark Valek appears about one month earlier than usual (we already mentioned in our most recent gold update that it would become available soon). As always, the report is extremely comprehensive, discussing everything from fundamentals pertaining to gold, to technical analysis to statistical studies on the behavior of gold under different economic scenarios.

August Gold, 2017(see more posts on Gold, ) – Click to enlarge
In fact, there is no other gold study available that contains a comparable wealth of valuable statistical information in chart form. Anyone with the slightest interest

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The Gold Conundrum

June 2, 2017

Keeping it Simple
We recently (on Thursday last week to be precise) put together a few gold-related charts based on the “keep it simple” principle. The annual Incrementum “In Gold We Trust” report is going to be published shortly and contains a quite thorough technical analysis section, so we will keep this brief and just discuss a few things that have caught our eye.
So what is the “conundrum”? We will get to that further below. First we will look at two very simple gold charts, with 50 and 200 day simple moving averages, RSI and MACD, both daily and weekly. We actually made the chart annotations already before the COMEX open on Friday, but the charts do include Friday’s action. It makes no difference, since the

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Gold’s Advantages Over Fiat Currency – An Interview with Claudio Grass

May 28, 2017

Central Banks Produce Dire Consequences for the Free Market
Todd “Bubba” Horwitz has recently produced a podcast with our friend Claudio Grass of Global Gold, which we can be called up further below. Bubba has provided a summary of the topics discussed, an edited version of which you find below as well.

Global Gold CEO Claudio Grass, tireless advocate for free markets, sound money and liberty. Photo via Global Gold

Today on The Bubba Show, Bubba welcomes back Claudio Grass from the Mises Institute, author and founding member of Global Gold. Bubba and Claudio discuss current market conditions and what to expect. Claudio expresses concerns about the economy; he believes central bank economists are wrong with their

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Moving Closer to the Precipice

May 27, 2017

Money Supply and Credit Growth Continue to Falter
The decline in the growth rate of the broad US money supply measure TMS-2 that started last November continues, but the momentum of the decline has slowed last month (TMS = “true money supply”).  The data were recently updated to the end of April, as of which the year-on-year growth rate of TMS-2 is clocking in at 6.05%, a slight decrease from the 6.12% growth rate recorded at the end of March. It remains the slowest y/y growth since October of 2008, when the Fed had just begun to pump quite heavily.

US money supply and credit growth keep slowing.US money supply and credit growth keep slowing.
The monthly y/y growth rate of M1 fell rather more sharply in April,

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A Cloud Hangs Over the Oil Sector

May 14, 2017

Endangered Recovery
As we noted in a recent corporate debt update on occasion of the troubles Neiman-Marcus finds itself in (see “Cracks in Ponzi Finance Land”), problems are set to emerge among high-yield borrowers in the US retail sector this year. This happens just as similar problems among low-rated borrowers in the oil sector were mitigated by the rally in oil prices since early 2016. The recovery in the oil sector seems increasingly endangered though.

Too many oil barrels are filling up again. Photo credit: Kay Nietfeld / DPA / Corbis – Click to enlarge
Here is a chart we have frequently shown in the past, which illustrates the y/y change rate in commercial & industrial loan charge-offs plus delinquencies in comparison to junk bond yields (the federal funds rate is added for good measure):

.
To avoid misinterpretations of this chart, note that the big surge in the rate of change of charge-offs/delinquencies obviously started from very low levels. In absolute terms it came nowhere near to the levels that were seen in 2008 – 2009. Both the increase in charge-offs and delinquencies and the improvement over recent quarters closely tracked the problems and subsequent recovery in the oil & gas sector as the oil price plunged from late 2014 to early 2016 and then rebounded.

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The Triumph of Hope over Experience

May 12, 2017

The Guessers Convocation
On Wednesday the socialist central planning agency that has bedeviled the market economy for more than a century held one of its regular meetings.  Thereafter it informed us about its reading of the bird entrails via statement (one could call this a verbose form of groping in the dark).
A number of people have wondered why the Fed seems so uncommonly eager all of a sudden to keep hiking rates in spite of economic data in Q1 indicating surprising weakness in   economic output (of course they once again didn’t hike rates, this time).
We have long suspected that the real reason for the urge to hike is to accumulate “ammunition” for the next downturn. After all, it really shouldn’t make much of a difference where the federal funds rate is; the federal funds market is basically dead anyway, and the Fed continues to refrain from shrinking its balance sheet (i.e., bank reserves will remain elevated, and the Fed won’t actively exert pressure on money supply growth).

Modern economic forecasting rituals. – Click to enlarge
Then again, the statement is actually in keeping with the orthodox (largely Keynesian) view of the economy and the central bank’s presumed tasks. There is actually no need to take it at anything but face value.

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Emerging Markets: Buyer Beware – An Interview with Jayant Bhandari

May 7, 2017

Jayant on Emerging Markets, Precious Metals and Mining Companies
Maurice Jackson of Proven & Probable has once again interviewed one of our friends, namely Jayant Bhandari, a frequent and highly valued contributor to Acting Man.  Jayant is probably best known to our readers for his strong criticism of the economic and nationalist policies implemented by prime minister Narendra Modi in India since he decreed the demonetization of the bulk of the cash currency circulating in the country (see his most recent article here).

Jayant Bhandari speaking at the 2016 Capitalism and Morality seminar. – Click to enlarge
It is probably fair to say that Jayant is a lone contrarian voice in India at the moment, but we believe a very important one. In the process, he is not shying away from slaughtering a great many sacred cows, so too speak. Taking a stand against a misguided majority and a ruthless political machinery is risky, but at times someone has to stand up and do it. As an aside to this, we find it quite interesting that Mr. Modi, who is clearly a “populist”, is apparently beloved by a a great many globalists, who praise him to the rafters at every opportunity.

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Cracks in Ponzi-Finance Land

April 27, 2017

Retail Debt Debacles
The retail sector has replaced the oil sector in a sense, and not in a good way. It is the sector that is most likely to see a large surge in bankruptcies this year. Junk bonds issued by retailers are performing dismally, and within the group the bonds of companies that were subject to leveraged buyouts by private equity firms seem to be doing the worst (a function of their outsized debt loads). Here is a chart showing the y-t-d performance of a number of these bonds as of the end of March:

Note the stand-out Neiman Marcus, a luxury apparel retailer, the bonds of which have been in free-fall this year. The company was bought out in an LBO and was saddled with a mountain of debt in the process. Investors buying this debt have now come to regret their purchases, particularly as it is debt of the “creative” kind.
Investor demand for junk bonds continues to be brisk, with inflows from retail investors said to be particularly strong. As we have pointed out on previous occasions, this surge in demand has resulted in creditors accepting ever softer loan covenants.

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French Selection Ritual, Round Two

April 26, 2017

Slightly Premature Victory Laps
The nightmare of nightmares of the globalist elites and France’s political establishment has been avoided: as the polls had indicated, Emmanuel Macron and Marine Le Pen are moving on to the run-off election; Jean-Luc Mélenchon’s late surge in popularity did not suffice to make him a contender – it did however push the established Socialist Party deeper into the dustbin of history. That was very Trotskyist of him (we can already picture a future Weekly World News headline: “French socialists discover giant alien dust mites”).

Lateral entrants to the business of avenging the disinherited, leavened by strawberry cake. – Click to enlarge
Around three micro-seconds after the election results became known, the entire French and European political elite immediately announced its undying support of Emmanuel Macron, with only a handful of “populist” parties outside of France saying that they were rooting for Marine Le Pen.
Just to clear this up beforehand, Ms. Le Pen may be the terror of the establishment, but she is just as statist as her competition was and is – in some respects probably more so. The run-off election is between two central planners (or at least “third way” proponents), each one of whom believes to be in possession of the “better plan”.

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French Election – Bad Dream Intrusion

April 19, 2017

The “Nightmare Option”
The French presidential election was temporarily relegated to the back-pages following the US strike on Syria, but a few days ago, the Economist Magazine returned to the topic, noting that a potential “nightmare option” has suddenly come into view. In recent months certainty had increased that once the election moved into its second round, it would be plain sailing for whichever establishment candidate Ms. Le Pen was going to face. That certainty has been shaken quite a bit lately.

The four front-runners in the first round election, from left to right: François Fillon, Emmanuel Macron, Jean-Luc Mélenchon, Marine Le Pen. That’s right, Mr. Mélenchon, a.k.a. the “French Hugo Chavez” has actually become a serious contender. If you want to know how abysmally bad his economic program is, just consider that Thomas Piketty supports him.

Photo credit: Patrick Kovarik / AFP – Click to enlarge
Apparently French voters were greatly impressed by far-left candidate Jean-Luc Mélenchon, who on occasion of the second televised debate once again proved his ability to out-gab his competitors.

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Gold – An Overview of Macroeconomic Price Drivers

April 13, 2017

Fundamental Analysis of Gold
As we often point out in these pages, even though gold is currently not the generally used medium of exchange, its monetary characteristics continue to be the main basis for its valuation. Thus, analysis of the gold market requires a different approach from that employed in the analysis of industrial commodities (or more generally, goods that are primarily bought and sold for their use value). Gold’s extremely high stock-to-flow ratio and the main source of gold demand  – which is monetary, or investment demand – suggest that gold has to be analyzed as though it were a currency rather than a commodity.
One implication of this is that reservation demand is an extremely important factor in determining the gold price (for details on this topic see Robert Blumen’s essay “What Determines the Price of Gold”). Data on the annual flow of gold in terms of mining supply, jewelry demand, retail buying of gold eagles or net demand from central banks are insignificant by comparison.
Since none of us are mind readers, we cannot know the reservation prices/ supply schedules of current gold holders – they are not measurable.

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